Secrets to Strong Money Market

Examining the trade in short-term loans between banks and other financial institutions, Covenant University scholar suggests ways to better performance

Governments, corporations, industries and businessmen (big and small) in Nigeria, who are in need of funds, are expected to find solace in the money market, which is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.

However, a study by Covenant University faculty members, titled ‘Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria’, and authored by Isibor Areghan Akalonu, Ochei Ikpefan and Okafor Tochukwu Chibuzor, all of the Department of Banking and Finance; and Ojeka Stephen of the Department of Accounting, examined the impact of the Nigerian money market instruments (currency, share and bond) on the liquidity (financial buoyancy) of ten selected quoted banks from 2005 to 2014 and found out that while net working capital (money immediately available for business use) had a positive impact on total currency, share and bond, net operating profit (earnings before interest and taxes adjusted for the impact of taxes) had a negative impact on total currency, share and bond.

The study, among other recommendations, asked government to implement policies that would develop and strengthen the money market and banks should come up with sound working capital policies to improve profitability.